What the EI Freeze Means for You

The Government of Canada has axed plans to increase EI rates over the next three years. Here’s how the change will affect your business

 
Written by Deborah Aarts

On Monday, federal finance minister Jim Flaherty announced that the Government of Canada will freeze Employment Insurance (EI) premium rate for employees at $1.88 per $100 of insurable earnings for 2014—and that rates will not increase in 2015 and 2016.

Since most employers must pay 1.4 times the amount of employee premiums, that means you’ll be contributing $2.63 per $100 of insurable earnings for the next three years.

For residents of Quebec, covered under the Quebec Parental Insurance Plan, the employee-paid rate will drop to $1.53 per $100 of insurable earnings next year.

Flaherty’s announcement marks something of an about-face for the government, since the government had previously announced plans to increase employee premiums to $1.98 per $100 of insurable earnings (which would have meant $2.77 from you) over the next few years. The feds cite strong job growth and a stable economy as the reasons for the freeze.

What does this mean for you?

The Canadian Federation of Independent Business (CFIB) pegs the savings for a 10-employee firm at $340 next year. CFIB president and CEO Dan Kelly called the freeze “fantastic news” for entrepreneurs, adding “This move will keep hundreds of millions of dollars in the pockets of employers and employees which can only be a positive for the Canadian economy,” Kelly said in a statement. “As employers pay 60% of the cost of the EI system, small firms can use these savings to hire, improve wages or help grow their businesses.”

The Retail Council of Canada (RCC) also came out in favour of the move. “The retail sector is Canada’s largest employer and as a result bears the bulk of the burden of paying into the EI system,” said president and CEO Diane Brisebois. “This freeze on premiums will mean more money for employers to invest in other important areas such as employment, training and infrastructure.” And even though the savings will be small, they will have a positive cumulative effect, added Misti Mussatto, owner of Vancouver retailer Toy Jungle and co-chair of MySTORE (the independent retail division of RCC): “Even the smallest tax relief goes a long way to helping businesses grow and thrive.”

Read: What’s Holding Canada Back?

The government has also decided to raise the maximum insurable earnings rate to $48,600 in 2014—an increase from the $47,400 it is now, which in itself is an increase from the $45,900 it was last year. According to a report from the CBC, employers will pay $1,279 for every employee earning more than $48,600 in 2014. That’s roughly $31 more than you’ll pay for a maxed-out employee this year, but $34 less than what you’d be paying had the proposed increase come into effect.

Employee-paid EI premium rates, 1986-2016 (Source: Department of Finance Canada)

How will the EI freeze affect your business? Will it have a tangible benefit? Or is it simply government spin on a negligible change? Answer our poll or share your thoughts by commenting below.

Originally appeared on PROFITguide.com

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